SYDNEY Friday 02 August 2013 – Advisers are being warned to pay very close attention to the starting dates for pensions.
‘The ATO has retained its strict adherence to its views as to the “commencement date” of a pension,’ warns Townsends Business & Corporate Lawyers special counsel superannuation Michael Hallinan.
‘Advisers will have to liaise with clients in May or June to commence a pension from 1 July – rather than in the following February when the accounts are being done.
‘Given the tax significance of the of pension commencement – e.g. entitlement to exempt current pension income “deduction” – the ATO will be particularly interested that if the pension commences by means of a request from the member, the request is dated on or before the commencement date.’
‘The ATO has softened its requirement as to what constitutes a commutation of a pension. In the draft ruling the ATO suggested that only if the annual pension amount was fixed (or determinable) could the pension be commuted.
‘The ATO has moved away from this position but has not specified what documentation should be used to commute a pension given that a commutation is the payment of a present lump sum in lieu of future pension payments.
‘If a member simply asks for a $20,000 from the pension account is this a commutation or a variation of the drawdown amount?
‘Does adding the word “commutation” to the request get it over the line?’
Hallinan says the ruling also raises the question whether pension switches should be embedded in the governing rules of the fund – so that a pension automatically commences on attaining preservation age or satisfaction of an unrestricted release condition and can be switched off by the trustee simply not making any pension payment.
Finally, re-contribution strategies for members between preservation age and age 60 can be significantly enhanced if the member is able to commence an account-based pension (as against a transition to retirement pension) and elect to have the payments from the pension interests treated as super lump sums.
These payments will be tax free to the extent the member has not exhausted their low rate cap limit (i.e. which is $180,000) and can either be consumed or re-contributed to super as non-concessional contributions
contact
Michael Hallinan
special counsel superannuation
Townsends Business & Corporate Lawyers
02 8296 6222
michael@townsendslaw.com.au